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Business – ‘3G services will weigh heavy on telcos’

MUMBAI: Third generation (3G) mobile services will have a negative impact on cellular service providers in the short term. Apart from significant
investments made in the spectrum auction process and establishing networks, 3G will increase operating costs on account of higher marketing expenses and possible subsidies on handsets, according to a study by ratings agency ICRA.

The empowered group of ministers (EGoM) has fixed a reserve price of Rs 3,500 crore for the pan India 3G spectrum and the auction is expected to take place on January 14 next year. “We expect the funding requirements of telecom operators to increase in the short term on account of these investments. This is expected to lead to greater reliance on debt and pressurise return indicators in the short term,” ICRA said in a report released on Thursday.

Also, the actual price paid by telecom operators could be higher, especially in the metros and category A Circles, given the limited number of slots to be auctioned and the attractiveness of these circles. Put simply, 3G refers to enhanced data application along with multimedia. It allows high-speed internet surfing, faster movie and music downloads, video streaming and video calls on handsets. Like any new service, 3G services would also require investments in the development of new service platforms and successful marketing. “All this would result in an increase in funding requirement on the one hand, and an increase in operating costs, essentially marketing expenses, on the other,” ICRA said.

However, in the long term, it will be beneficial for an operator to be a 3G player. The benefits would accrue via higher data and value added services revenues. This would be helpful in a scenario of falling average revenues per user (ARPU). Currently, data contributes around 6-7% of revenues for operators while it is upto 25% in developed telecom markets.

3G will also offer competitive advantage over 2G players and higher spectrum efficiency. “3G would enable operators manage their 2G spectrum more efficiently. 3G has higher voice carrying capacity and will help alleviate the spectrum crunch especially in urban areas, thereby improving the quality of service,” the report added.

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